Buy shares now, sell to SMSFs later

DIY funds now account for $241 billion in domestic shares or an enormous 16.1 per cent of the total Australian equity market. They hold $134 billion in property and a further $154 billion in cash.
Photo: Louise Kennerley

by
James Frost

The most profitable equity market strategy in the years ahead will be to correctly identify the high-yielding stocks of tomorrow before selling them to income-hungry, self-managed super funds paying top dollar, according to Credit Suisse.

Long-standing preferences for high-yielding equities among our million- strong army of SMSFs or “selfies" has created a significant opportunity for those investors prepared to weather a little short-term volatility, according to the report.

Following the creation of the millionth SMSF, the report builds on earlier work about how to profit from the boom in DIY investing before arriving at the conclusion “Buy now, sell to selfies later".

Credit Suisse analysts Hasan Tevik and Damien Boey identified 11 companies forecast to raise dividends and recommended “buying these companies now in anticipation of selling to less risk- tolerant investors like selfies later".

The stocks that made the short list have an average net yield of 2.5 per cent but are forecast to raise distributions to 6.3 per cent over the next two years.

Although SMSFs were unlikely to be attracted to the day-to-day share price volatility from BlueScope Steel or Myer, that would dissipate as dividends were raised and attracted more buy and hold investors.

“Some of these companies are in the process of restructuring which would be a classic low-to-high payout ratio stock. Selfies are not interested in the process of restructuring, but could be interested after a successful execution," the analysts said.

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According to the report, the SMSF segment has upped its overall exposure to Australian equities by 110 basis points over the past 12 months and now sits at 43.1 per cent on average.

DIY funds now account for $241 billion in domestic shares or an enormous 16.1 per cent of the total Australian equity market. They hold $134 billion in property and a further $154 billion in cash.

The typical SMSF is managed by a male in his early 60s, holds $1.73 million, is around 10 years old and includes his spouse.

The bulk of the fund is made of member contributions including the ballon payments of 2006-07 where fund members were allowed a “one-off" payment of $1 million tax-free. The remaining funds were the product of investment returns and employer contributions.

Tevik and Boey first coined the phrase “selfies" in a report released in January, where the bank reversed underweight positions in the major banks on the basis that yield-hungry DIY fund members could not be compelled to sell.